[Chart courtesy of MarketWatch.com]

1. Moving the markets

An early broad rally bit the dust, with the major indexes losing all initial gains and not just sliding into the red but also closing at the lows of the session.

While the bond market was closed in the US, the Chinese probably wish theirs would have been too, but no such luck. They were fully open, and traders took advantage of it by focusing on one thing only, namely selling.

ZeroHedge called it this way:

In the aftermath of our viral post “”Catastrophic” Property Sales Mean China’s Worst-Case Scenario Is Now In Play”, China property firms bonds were hit with another wrecking ball on Monday as Evergrande was set to miss its third round of (offshore) bond payments in as many weeks and rival Modern Land became the latest scrambling to delay deadlines.

And then this:

“It’s a disastrous day,” Clarence Tam, fixed income PM at Avenue Asset Management in Hong Kong, told Reuters, highlighting how even some supposedly safer “investment grade” firms had now seen 20% wiped off their bonds. “We think it’s driven by global fund outflow….

As I mentioned before when the Evergrande story broke a weeks ago “there is never just one cockroach,” a theory that has proven correct with a host of other Chinese developers trying to find a way to avoid the unavoidable.

Adding to that uncertainty from the usual suspects like surging oil prices, ever increasing inflation, economic concerns with the impending third quarter earnings season on deck, and it came as no surprise that the markets shifted into retreat mode.

While at first rangebound, the US Dollar broke out to the upside and closed higher causing gold to pretty much tread water and go nowhere.

In the end, it seemed that traders and computer algos alike tried to grapple with these various events. As it turned out, at least for this session, the path of least resistance was to the downside.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

During the early part of today’s session, the market ping-pong continued, when the major indexes took a steep dive with the Dow down some 400 points and on pace to again wipe out the previous day’s gains.

However, a slow but steady rebound ensued with equities digging themselves out of a deep hole and scoring a green close, the second one in a row. This rebound was supported by optimism about a debt ceiling deal, causing traders to jump back into the much-neglected tech sector.

CNBC called it this way:

Stocks reversed course on news that Senate Minority Leader Mitch McConnell told a closed meeting of Republicans that he would offer a short-term debt ceiling extension later Wednesday. That would help relieve some pressure on Congress to avoid a U.S. default currently expected on Oct. 18.

As a result, the dip was bought, despite nagging concerns about risings interest rates, surging inflation, the state of reopening, and the debt limit being on everyone’s mind.

Bond yields spiked and then tumbled but closed higher with the 10-year ramping to almost 1.57%, before pulling back into the close and ending the day at 1.528%.

The US Dollar moved in similar fashion, first up and then down, but it also closed higher for the session.

The roller coaster ride in both, bond yields and the dollar, aided Gold for the day with the precious metal bouncing moderately and scoring a gain of 0.23%.

So far, the month of October has sure lived up to its reputation as the most volatile month of the year. And we’re only 6 days into it.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

We have now witnessed a continued roller coaster with no clear direction but huge daily swings in equities. Over the past 4 trading days, we noted this pattern: down, up, down, up with today’s rally bringing the S&P 500 just about back to last Wednesday’s price. In other words, not much was gained or lost, but with “breadth” being indicative of more downside to come.  

Despite its recent weakness, the Nasdaq finally stormed back outperforming the other two major indexes, at least for this session. In the recent past, we saw a tale of two markets with stocks tied to the economic recovery battling Big Tech, with the latter struggling during the past month, but today both gained.

After yesterday’s market drubbing, an unexpected assist surfaced this morning, as news spread that Senator Manchin’s stern view of the Biden infrastructure package may be showing signs of cracking with him now not ruling out a $1.9-2.2 trillion social spending plan. That is much higher than his earlier number of around $1.5 trillion.

That was music to the ears of traders on Wall Street and off we went. While the markets came off their highs in the end, it was nevertheless a solid recovery from yesterday’s debacle.

Despite the warm fuzzies that today’s rebound evoked, debt ceiling doubts continue to spread, as this chart shows. Of course, we’ve seen that tug-of-war for decades, followed by last-minute compromises, but it still leaves me wondering “will it be different this time?”

The US Dollar index rallied and bond yields surged, thereby leaving gold in the dust with the precious metal dipping 0.38%.